Form 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-8325
MYR GROUP INC.
(Exact name of registrant as specified in its charter)
Delaware 36-3158643
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) No.)
1701 W. Golf Road, Tower 3, Suite 1012, Rolling Meadows, Illinois 60008
(Address of principal executive offices)
(Zip Code)
(847) 290-1891
Registrant's telephone number, include area code
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
and Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or 15(d)
of the Securities Exchange Act of 1934 subsequent to the distribution
of securities under a plan confirmed by a court.
Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of May 11, 1998: 5,605,992
MYR GROUP INC.
I N D E X
PART I. Financial Information Page No.
Item 1. Financial Statements
Condensed Consolidated Balance Sheets -
March 31, 1998 and December 31, 1997 2
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1998 and 1997 3
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1998 and 1997 4
Notes to Condensed Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7-8
PART II. Other Information
Item 1. Legal Proceedings 9
Item 6. Exhibits and Reports on Form 8-K 9
SIGNATURE 10
Part I, Item 1
Financial Information
MYR Group Inc.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
March 31 Dec. 31
1998 1997
(Unaudited) *
ASSETS
Current assets:
Cash and cash equivalents $ 545 $ 3,757
Contract receivables including retainage 74,522 75,414
Costs and estimated earnings in excess of 20,782 14,919
billings on uncompleted contracts
Deferred income taxes 5,322 5,322
Other current assets 1,081 587
Total current assets 102,252 99,999
Property and equipment: 55,607 54,858
Less accumulated depreciation 39,024 37,967
16,583 16,891
Other assets 1,954 534
Total assets $ 120,789 $ 117,424
LIABILITIES
Current Liabilities:
Current maturities of long-term debt $ 17,638 $ 13,462
Accounts payable 19,212 19,727
Billings in excess of costs and estimated 9,559 9,183
earnings on uncompleted contracts
Accrued insurance 13,084 15,121
Other current liabilities 20,347 19,908
Total current liabilities 79,840 77,401
Deferred income taxes 746 746
Other liabilities 419 415
Long-term debt:
Promissory notes and other debt 1,604 1,625
Industrial revenue bond 480 480
Subordinated convertible debentures 5,447 5,679
Total long-term debt 7,531 7,784
SHAREHOLDERS' EQUITY
Common stock and additional paid-in capital 6,243 5,582
Retained earnings 28,121 27,238
Treasury stock (175) (522)
Restricted stock awards and shareholders' (1,936) (1,220)
notes receivable
Total shareholders' equity 32,253 31,078
Total liabilities and shareholders' equity $ 120,789 $ 117,424
*Condensed from audited financial statements
The "Notes to Condensed Consolidated Financial Statements" are an
integral part of this statement.
MYR Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands except per share amounts)
(Unaudited)
Three Months Ended March 31 1998 1997
Contract revenue $ 110,671 $ 89,004
Contract cost 101,742 81,619
Gross profit 8,929 7,385
Selling, general and 6,739 5,871
administrative expenses
Income from operations 2,190 1,514
Other income (expense)
Interest income 4 8
Interest expense (445) (250)
Gain on sale of property and 47 7
equipment
Miscellaneous 7 (124)
Income before taxes 1,803 1,155
Income tax expense 721 462
Net income $ 1,082 $ 693
Earnings per share:
Basic $ .20 $ .13
Diluted $ .17 $ .11
Dividends per common share $ .035 $ .033
Average number of shares
outstanding:
Basic 5,548 5,406
Diluted 6,621 6,887
The "Notes to Condensed Consolidated Financial
Statements" are an integral part of this statement.
MYR Group Inc.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(Unaudited)
Three Months Ended March 31 1998 1997
CASH FLOWS FROM OPERATIONS
Net income $ 1,082 $ 693
Adjustments to reconcile net income to
cash flows
from operations
Depreciation and amortization 1,248 1,292
Amortization of intangibles 52 58
Gain from disposition of assets (47) (7)
Changes in assets and liabilities (8,623) (3,885)
Cash flows from operations (6,288) (1,849)
CASH FLOWS FROM INVESTMENTS
Expenditures for property and equipment (952) (1,282)
Proceeds from disposition of assets 59 27
Cash flows from investments (893) (1,255)
CASH FLOWS FROM FINANCING
Proceeds from long term debt 4,156 2,762
Proceeds from exercise of stock options 8 62
Decrease (increase) in deferred 4 (3)
compensation
Dividends paid ( 199) (179)
Cash flows from financing 3,969 2,642
Decrease in cash and cash equivalents (3,212) (462)
Cash and cash equivalents at beginning 3,757 1,011
of year
Cash and cash equivalents at end of $ 545 $ 549
period
The "Notes to Condensed Consolidated Financial Statements"
are an integral part of this statement.
MYR Group Inc.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1 - Basis of Presentation
The condensed consolidated balance sheet, statement of operations
and statement of cash flows include the accounts of the Company and
its subsidiaries. All material intercompany balances and transactions
have been eliminated.
The financial information included herein is unaudited; however,
such information reflects all adjustments (consisting solely of normal
recurring adjustments) which are, in the opinion of management,
necessary for a fair presentation of results for the interim period.
The results of operations for the three month period ended March
31, 1998 are not necessarily indicative of the results to be expected
for the full year.
2 - Acquisition
On May 1, 1997, the Company completed the acquisition of all the
stock of D.W. Close Company, Inc. ("D.W. Close"). D.W. Close is
engaged primarily in the installation of lighting systems, electrical
maintenance/construction and smart highway construction for
commercial, industrial and municipal customers.
All the shares of D.W. Close were exchanged for $400,000 in cash
and $2,500,000 of promissory notes. The principal is due in
installments of $250,000, $666,667, $666,667 and $916,666 on September
30, 1997, May 1, 1998, 1999, 2000, with interest payable quarterly
each year. The transaction has been accounted for using the purchase
method of accounting.
3 - Discontinued Operations
As part of the sale in 1988 of its former engineering subsidiary,
the Company retained certain rights and obligations in connection with
a lawsuit with National Union Fire Insurance Company of Pittsburgh,
PA. In June 1997, the Company settled the lawsuit and received
$4,250,000. The Company had a receivable relating to this lawsuit of
$1,854,000. The remaining $2,396,000 related to reimbursement for
interest and legal costs.
4 - Earnings Per Share
On December 31, 1997, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, Earnings Per Share, which
requires the disclosure of two earnings per common share computations:
basic and diluted. The basic earnings per common share is computed by
dividing net income by the weighted average number of shares of common
stock. The diluted earnings per share reflects the potential dilution
which would result from the exercise of stock options and conversion
of the convertible subordinated notes. Earnings per share computations
for prior years have been restated to reflect this new standard.
Basic and diluted weighted average shares outstanding and earnings per
share on net income are as follows:
Three months ended March 31
Share Data: 1998 1997
Basic Shares 5,548 5,406
Common equivalent shares 714 481
Shares assumed converted 359 1,000
Diluted shares 6,621 6,887
Three months ended March 31
1998 1997
Total Per Share Total Per Share
Net
Income:
Basic 1,082 $ 0.20 693 $ 0.13
Interest on convertible
subordinated shares 22 59
Diluted 1,104 $ 0.17 752 $ 0.11
5 - Supplemental Quarterly Financial Information (Unaudited)
(Dollars in thousands, except per share amounts)
1998 1997
Mar. 31 Mar. 31 June 30 Sept. 30 Dec. 31 Year
Contract revenue 110,671 89,004 112,310 119,838 110,124 431,276
Gross profit 8,929 7,385 9,954 11,789 10,532 39,660
Income from continuing 1,082 693 1,710 1,890 1,658 5,951
operations
Net income 1,082 693 2,312 1,890 1,658 6,553
Earnings per share -
Basic:
Income from continuing 0.20 0.13 0.31 0.35 0.30 1.09
operations
Net income 0.20 0.13 0.42 0.35 0.30 1.20
Earnings per share -
Diluted:
Income from continuing 0.17 0.11 0.25 0.27 0.24 0.87
operations
Net income 0.17 0.11 0.34 0.27 0.24 0.96
Dividends paid per share 0.035 0.033 0.033 0.033 0.033 0.132
Market price:
High 12.81 8.40 10.99 14.18 14.85 14.85
Low 11.31 7.20 6.98 10.50 12.44 6.98
6 - Pending Accounting Pronouncements
In 1997, the Financial Accounting Standards Board Issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 131 establishes standards for reporting
information about operating segments and related disclosures about
products and services, geographic areas and major customers. This
standard is effective for years beginning after December 15, 1997, and
does not need to be applied to interim financial statements in the
initial year of its application. It expands current disclosures and
accordingly, will have no impact on the Company's reported financial
position, results of operations and cash flows. The Company is
assessing the impact of SFAS No. 131 on its current disclosures.
Part I Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations
for the Three Months Ending March 31, 1998
(Dollars in thousands)
Results of Operations
Revenue for the quarter was $110,671, compared to $89,004 in
1997, or an increase of 24.3%. The revenue increase was primarily due
to an increase of $10 million in the volume of work in Las Vegas on a
major hotel and casino and the D.W. Close acquisition described in
Note 2 to the Financial Statements.
Gross profit for the quarter was $8,929, compared to $7,385 in
1997, or an increase of 20.9%. Gross profit as a percentage of
revenue was 8.1% compared to 8.3% in 1997. The margin percentages in
1998 and 1997 are lower than normal for the Company due primarily to a
greater percentage of our commercial-industrial revenues coming from a
significant cost-plus fixed fee job in Las Vegas. The cost-plus fixed
fee work generally involves lower financial risk, therefore generates
lower margins. The 1998 margins were also negatively impacted by poor
productivity due to excessively wet working conditions across the
southern half of the country offset by lower than normal insurance
costs as a result of favorable safety costs and insurance company
reserve adjustments.
Revenue and gross profit comparisons from quarter to quarter and
comparable quarters of different periods may be impacted by variables
beyond the control of the Company. Such variables include unusual or
unseasonable weather and delays in receipt of construction materials
on projects where the materials are provided to the Company by its
clients. The different mix of the Company's work from period to period
can impact the gross margin percentage. As the percentage of revenue
derived from projects in which the Company supplies materials
increases, the gross profit percentage will generally decrease. As
the percentage of revenue derived from cost-plus work increases,
margins may also decrease since this work involves lower financial
risk. Finally, since the Company's revenues are derived principally
from providing construction labor services, insurance costs,
particularly for workers' compensation, are a significant factor in
the Company's contract cost structure. Fluctuations in insurance
reserves for claims under the retrospective rated insurance programs
can have a significant impact on gross margins, either upward or
downward, in the period in which such insurance reserve adjustments
are made.
Selling, general and administrative expenses for the quarter
increased 14.8% to $6,739, compared to $5,871 in 1997. The increase
reflects the inclusion of D.W. Close and additional compensations
costs to support the higher volume of work. Selling, general and
administrative expenses as a percentage of revenues decreased to 6.1%
in 1998 from 6.6% in 1997 due to higher consolidated revenue spread
over a relatively fixed expense base.
Net interest expense for the quarter was $441 compared to $242 in
1997. The increase in interest expense was due to higher average
outstanding bank debt levels in 1998 compared to 1997 and the addition
of promissory notes for the D.W. Close acquisition. The higher average
outstanding debt levels were necessary to support the working capital
needs for the higher revenue volume and the increase of $8 million in
net retentions, mainly relating to the major hotel and casino project
in Las Vegas.
Gain on sale of property and equipment was $47 compared to $7 in
1997. The 1998 gain reflects sales and disposals in our continuing
efforts to modernize the equipment fleet.
Other income for the quarter was $7 compared to other expense of
$124 in 1997 and consisted primarily of bank fees and amortization of
goodwill, offset by cash discounts. The decrease in other expense in
1998 is due to the elimination of amortization of goodwill as a result
of the claim settlement with Harlan subordinated note holders.
Income tax expense for the quarter was $721 compared to $462 in
1997. As a percentage of income, the effective rate was 40% in 1998
and 1997.
The Company's backlog at March 31, 1998 was $136,500, compared to
$136,400 at December 31, 1997, and $138,100 at March 31, 1997.
Substantially all the current backlog will be completed within twelve
months and approximately 80% will be completed by December 31, 1998.
Liquidity and Capital Resources
Cash flows provided from net proceeds of long term debt and the
exercise of stock options for the quarter amounted to $4,164, which
was used for operations of $6,288, net capital expenditures of $893
and dividends paid of $199. The Company's financial condition
continues to be strong at March 31, 1998, with working capital of
$22,412 compared to $22,598 at December 31, 1997. The Company's
current ratio was 1.28:1 at March 31, 1998, compared to 1.29:1 at
December 31, 1997.
The Company has a $20,000 revolving and $1,875 term credit
facility. As of March 31, 1998, there were $14,800 and $1,875
outstanding under the revolving and term credit facility,
respectively. The Company has outstanding letters of credit with
Banks totaling $14,536. The Company anticipates that its credit
facility, cash balances and internally generated cash flows will
continue to be sufficient to fund operations, capital expenditures and
debt service requirements. The Company is also confident that its
financial condition will allow it to meet long-term capital
requirements.
Capital expenditures for the quarter were $952 compared to $1,282
in 1997. Capital expenditures during these periods were used for
normal property and equipment additions, replacements and upgrades.
Proceeds from the disposal of property and equipment for the quarter
amounted to $59 and $27 in 1997. The Company plans to spend
approximately $5,700 on capital improvements during 1998.
Year 2000 Compliance
Over the next two years, most companies will face a potentially
serious business problem because many software applications and
business equipment developed in the past may not properly recognize
calendar dates beginning in the year 2000. This problem could cause
systems to become unstable, stop working altogether or provide
incorrect data based upon dates.
In 1997, the Company began to evaluate and convert all systems
that were not capable of performing properly in the year 2000 and
beyond. All material systems within the Company are expected to be
compliant by December 31, 1998. The evaluation, correction and testing
of all material systems in the Company will include internal staff
time as well as consulting and other expenses related to equipment
upgrades and replacements and software modifications. The estimated
costs associated with the project are not anticipated to be material
to the financial position or results of operations in any given year
and are being expensed as incurred.
The Company, in addition to the above, is also surveying all
significant customers and suppliers to determine their compliance with
the year 2000 issue and what impact, if any, their efforts will have
on the Company's business.
PART II
Item 1. Legal Proceedings
There were no material developments during the quarter relating to
legal proceedings previously reported by the Company.
Item 4.Submission of Matters to a Vote of Security Holders
The Company held its annual meeting of stockholders on May 6, 1998,
pursuant to notice of meeting and proxy statement sent to stockholders
of the Company. Stockholders elected Charles M. Brennan III as the
Class III director to serve a term until the annual meeting of
stockholders to be held in the year 2001. Mr. Brennan was the
incumbent Class III director who was nominated for election by the
Board of Directors for re-election. Messrs. William G. Brown (Class
I), John M. Harlan (Class I), Allan E. Bulley, Jr. (Class II) and Bide
L. Thomas (Class II) continue to serve as directors of the class
indicated after the meeting.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits filed herewith are listed in the Exhibit Index filed as
a part hereof and incorporated herein by reference.
b. No reports on Form 8-K were filed by the Company for the 1st
Quarter of 1998.
CAUTIONARY STATEMENT-- This Report may contain statements which
constitute "forward-looking" information as defined in the Private
Securities Litigation Reform Act of 1995 or by the Securities and
Exchange Commission. Investors are cautioned that any such forward-
looking statements are not guarantees of future performance and actual
results may differ.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
MYR Group Inc.
Date: May 14, 1998 By: /s/
Elliott C. Robbins, Sr. Vice President,
Treasurer, and Chief Financial Officer
(duly authorized representative of
registrant and principal financial officer)
MYR Group Inc.
Quarterly Report on Form 10Q
for the Quarter Ended March 31, 1998
Exhibit Index
Number Description Page (or Reference)
27 Financial Data Schedules 12
5
1,000
3-MOS
DEC-31-1998
JAN-01-1998
MAR-31-1998
545
0
75,189
667
0
102,252
55,607
39,024
120,789
79,840
5,927
0
0
5,623
26,630
120,789
110,671
110,671
101,742
108,481
7
0
250
1,803
721
1,082
0
0
0
1,082
.20
.17
5
1,000
3-MOS
DEC-31-1997
MAR-31-1997
549
0
54,590
494
0
72,165
58,968
36,760
100,264
58,294
8,249
0
0
3,350
26,827
100,264
89,004
89,004
81,619
87,490
124
0
250
1,155
462
693
0
0
0
693
.13
.11
